The Real Exchange Rate Misalignment: Application of Behavioral Equilibrium Exchange Rate BEER to Morocco1980Q1–2012Q4

International Journal of Economics and Finance; Vol. 5, No. 10; 2013
ISSN 1916-971XE-ISSN 1916-9728
Published by Canadian Center of Science and Education

The Real Exchange Rate Misalignment: Application of Behavioral
Equilibrium Exchange Rate BEER to Morocco1980Q1–2012Q4
Hind Lebdaoui1
1

School of finance, Shanghai University of Finance & Economics, Shanghai, China

Correspondence: Hind Lebdaoui, School of finance, Shanghai University of Finance & Economics, Shanghai
200083, China. Tel: [phone]. E-mail: [e-mail]
Received: July 31, 2013 doi:10.5539/ijef.v5n10p36 Accepted: August 15, 2013

Online Published: September 26, 2013

URL: http://dx.doi.org/10.5539/ijef.v5n10p36

Abstract
This study is an attempt to estimate the behavioral equilibrium exchange rate in Morocco. Since the equilibrium value is unobservable, we use a set of fundamentals supposed to affect the exchange rate movements including the real net capital flows (NKF), terms of trade shocks (TOT), government fiscal stance (GOV), foreign reserve level (RES), index of monetary policy (MOP) and relative productivity (PROD) to get it. Using quarterly data from 1980Q1 to 2012Q4, the empirical analysis commences by checking the stationarity of the variables that turn out to be all stationary at first difference. Then, using the cointegration test and the Vector-Error Correction
Model of the Moroccan Dirham exchange rate as function of the indicated macroeconomic fundamentals, the regression shows that the main fluctuations of the real effective exchange rate are due to trade openness, government spending, terms of trade, the productivity progress, monetary policy and net capital inflow.
Accordingly, and using HP decomposition filter we figure out three periods of under/overvaluation ranging from
2.80% under to 2.16% over equilibrium level, furthermore, the misalignment from the equilibrium level needs from five to six years to be eliminated.
Keywords:

References: Baffes, J., Elbadawi, I., & O 'Connell, S. (1999). Single-equation estimation of the equilibrium real exchange rate. Bouoiyour, J., Marimoutou, V., & Rey, S. (2004). Taux de change réel d’équilibre et politique de change au Maroc: Une approche nonparamétrique Cassel, G. (1916). The present situation of foreign exchange. Economic Journal, 26, 62–65. Clark, P. B., & Macdonald, R. (2000). Filtering the BEER: A permanent and transitory decomposition. IMF Working Paper, 144. Clark, P., & MacDonald, R. (1998). Exchange rates and economic fundamentals: A methodological comparison of BEERs and FEERs Dibooglu, S. (1996). Real disturbances, relative prices and purchasing power parity. Journal of Macroeconomics, 18, 69–87 Dickey, D. A., & Fuller, W. A. (1981). Likelihood ratio statistics for autoregressive time series with a Unit Root. Econometrica, 49(4), 1057–1072. http://dx.doi.org/10.1177/053331648201500119 Domaç, I., & Shabsigh, G Driver, R., & Westaway, P. F. (2004). Concepts of equilibrium exchange rates. Working Paper 248, Bank of England. Edwards, S. (1989). Real exchange rates, devaluation, and adjustment: Exchange rate policy in developing countries Engle, R. F., & Granger, C. W. J. (1987). Co-integration and error correction: Representation, estimation, and testing Gujarati, D. N. (2003). Basic econometrics (4th ed.). New York: McGraw-Hill. Hamilton, J. D. (1994). Times series analysis. Princeton NJ: Princeton University Presse. Hinkle, L. E., & Montiel, P. J. (1999). Exchange rate misalignment: Concepts and measurement for developing countries Iimi, A. (2006). Exchange rate misalignment: An application of the behavioral equilibrium exchange rate (BEER) to Botswana Iossifov, P., & Loukoianova, E. (2007). Estimation of a behavioral equilibrium exchange ratemodel for Ghana. Johansen, S. (1988). Statistical analysis of cointegrating vectors. Journal of Economic Dynamics and Control, 12(231), 54. Johansen, S. (1991). Estimation and hypothesis testing of cointegration vectors in Gaussian vector autore gressive models Joly, H., Prigent, C., & Sobczak, N. (1996). Le taux de change réel d’équilibre. Une introduction. Économie et Prévision, 123–130. MacDonald, R. (1997). What determines real exchange rates? The long and short of it. IMF Working Paper WP/97/21, Washington: International Monetary Fund. Meese, R., & Rogoff, K. (1983). Empirical exchange rate models of the seventies: Do they fit out of sample? Journal of International Economics, 14, 3–24 Mongardini, J. (1998). Estimating Egypt’s equilibrium real exchange rate. IMF Working Paper 98/5. Phillips, P. C. B., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75, 335–346. Shi, J., & Yu, H. (2005). Renminbi equilibrium exchange rate and China’s exchange ratemisalignment: 1991– 2004 Williamson, J. (1994). Estimating equilibrium exchange rates. Zhang, X. (2002). Equilibrium and misalignment: An assessment of the RMB exchange ratefrom 1978–1999. Zhang, Z. (2001). Real exchange rate misalignment in China: An empirical investigation. Journal of Comparative Economics, 29, 80–94 Note 2. See Dickey, D.A. & Fuller, W.A. (1981).Likelihood ratio statistics for autoregressive time series with a Unit Root, Econometrica, 49(4), 1057–1072.